3. Imperial Jewelers is considering a special order for 20 handcrafted gold brac

Question

3. Imperial Jewelers is considering a special order for 20 handcrafted gold bracelets to be givern members of a wedding party. The normal selling price of a gold bracelet is $189.95 and its unit product cost is $149 as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost S 84 S 45 S S 149 20 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, S4 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $2 per bracelet and would also require ce the special order is completed. sales and the order could be fulfilled using the This order would have no effect on the company's regular company's existing capacity without affecting any other order. Required: What effec S169.95 per bracelet is offered for this order? Should the special order be accepted at this price? t would accepting this order have on the company's net operating income if a special price of Answer:

Explanation / Answer

If the special order is accepted, the net operating income would increase by $449.

Since there is an increase in the net incremental revenue if the special order is accepted, it is advisable to accept the special order.

Effect on net operating income if special order is accepted: Particulars Amount Incremental Revenue 20*169.95 3399 Less: Incremental Costs Direct Material 20*84 1680 Direct Labor 20*45 900 Variable Overhead 20*4 80 Additional material 20*2 40 Special tool 250 2950 Net Incremental Revenue 449

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